U.S. Health Care System 2011: Current Situation, Critism and Prospects

1. Introduction

This paper has been conducted as a part of the Washington D.C. summer program : "An American business environment". This program took place from the 10th of July until the 31st of July 2011 and was organized by the Applied Economics faculty of the University of Antwerp. The assignment is to go into an economic related topic of (the) American society. The objective for the participant is to develop (a) better understanding of the chosen topic and its impact on society and business relations. The research topic for this specific paper is the American healthcare system. The functioning of the healthcare system in the United States has been a controversial topic for several decades. More than once, healthcare has determined U.S. election results. Obama‟s victory against his republican opponent John McCain in 2008 was partially indebted to his vision concerning the need for healthcare reform(infra. ObamaCare). Moreover, 28 years earlier in his presidential campaign, Ronald Reagan also had played off the democratic universal healthcare proposition (cf. "Socialized Medicine") the other way around in times of heated Cold War tensions. The reason why discussions concerning the American healthcare system differ from previous discussions is that this time the focus of the discussion is more economic-orientated. While health expenditure as percentage of GDP has been increasing for almost every country in the OECD for the past 40 years, especially in the U.S. 1 , national governments are facing a new era where national savings are indispensable to pursue economic revival. Especially in the United States, where health care counts for a significant part of federal spending. Health expenditure in the U.S. is currently the highest in any OECD country (17,4% of GDP in 20092). It is certain that the worldwide need for federal savings on the one hand and the threat of aging population and rising health care costs on the other hand will affect future health policy and health expenditure. In order to obtain more insight in this matter the paper starts with an overview of important decisions and happenings in the past which have made the healthcare system(to what it represents today. After the current system‟s structure is clarified, the paper deals with criticisms and problems of the system at present. These include financial, budgetary and social aspects. To conclude, one tries to take a look at the possible scenarios for the near future of the American health system in times of alarming federal budget deficits. The nature of sources used for the composition of this paper is mostly electronic. Internet databases, reports and articles from organizations like OECD, Congressional Budget Office(CBO), Centers for Medicare/Medicaid Services(CMS), World Health Organization(WHO), Kaiser Family Foundation(KFF) and others are used most frequently. Besides the electronic sources, several chapters from the book "The American Health Empire: Power, Profits and Politics" by Barbara and John Ehrenreich have been very helpful as well.

1 OECD, Health Working Papers, No. 49, OECD Publishing,

2 OECD, Stats 2009

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2. Structure of the current U.S health care system

In this part a draft description has been conducted concerning the structure of the healthcare system in the United States.

2.1. Private vs. Public

The description starts with an important distinction which exists in almost every developed country around the world. Healthcare systems are organized in two different ways. On the one hand there is the publicly organized part of health care, on the other hand there is a privately organized part. Health working paper no. 49 of the OECD (Scherer and Devaux, 2010) describes the difference and cohesion between private and public funded healthcare in further detail. Scherer and Devaux(2010) describe public health as healthcare funded by obligatory insurance or by payroll taxation. On the other hand, healthcare funded by household or firms is considered to be private healthcare. This is no different for the United States. One should be aware of this difference to understand a national healthcare system. However, one should also understand that, depending on what kind of public healthcare is considered, private healthcare expenditure is positively or negatively correlated with public healthcare expenses.

When one compares the U.S. system with other industrialized countries, it should be noticed that for the United States only, private health care is the most significant part. In 2009 private parties funded 51,4%3 of the total health expenditure in the United States. In the United Kingdom for example, the share of private funding was only 16,4%4 in 2009. This is a unique characteristic of the U.S. healthcare system compared to other western healthcare systems. In 2009 the average public share of health expenditure in the OECD was 71.7%, which is significantly higher than the public expenditure on health care in the U.S. 47.7%5.

2.2. Public Health Insurance

The Social Security Act of 1965, during the Johnson administration, added two kinds of government social insurance programs to the existing Social Security legislation. These two programs still exist today, Medicare and Medicaid. Beside these two programs, there are two other public health systems. S-CHIP ( States Children‟s Health Insurance Program) was founded to fill in the gap between people who weren‟t eligible for Medicaid but could not afford their own private health insurance. VA ( Veteran‟s Administration) is a program set up for veterans of the military. The VA is completely administered by the federal government.

3 WHO, "Global Health Expenditure Database", United States of America

4 WHO, "Global Health Expenditure Database", United Kingdom

5 OECD Health Data 2011

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2.2.1.Medicare

2.2.1.1. Beneficiaries

Medicare provides medical help for both people over 65 years old and people with permanent physical disabilities. At this point in time, Medicare covers 49 million Americans, including 41 million elderly and 8 million permanently disabled people. People pay for Medicare during their working lives through payroll taxes and through premiums, depending on which part of Medicare is considered.

2.2.1.2. Structure

Medicare is divided in four parts. Part A covers hospital services(HI). Part B covers physician services,